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The Best Pick in Women's Apparel

The retail industry took it on the chin during the financial crisis, but this is good news for investors, as it has led to a number of cheap stocks. Once such company is Ann (NYSE: ANN) . What's really interesting about Ann is that it attacks the market from two very distinct angles. Its Ann Taylor brand is the affordable luxury brand for professionals, while its LOFT brand has relaxed lifestyle clothing and accessories. Ann also has outlet stores where it's able to sell any inventory build up.

By all accounts the company is growing nicely, with analysts believing that same-store sales should be up 4.5% in the third quarter and 5.8% in the fourth quarter. Ann is expected to add some 65 stores next year, including its first 10 stores in Canada. A big positive that should help the company hit its growth expectations.

Another interesting dynamic is that if employment begins to rise, meaning that the unemployment rate comes down from its three decade high of 7.3%, more shoppers could turn to Ann's stores to take advantage of its wear-to-work offerings.

Analysts believe that Ann can grow earnings per share at an annualized 10% over the next five years, which happens to be right with estimates for the industry. Even still, when you look at the valuation Ann is a compelling investment. Ann trades at 16 times earnings, while the apparel industry is trading at over 23 times.

Remember that Ann is trading at 16 times earnings, which compares well to Chico's 17 times and L Brands' 23 times. The good news for Chico's is that it's opening its first international store, which includes opening White House Black Market in Toronto, Canada. Later this month, Chico's plans to open stores in Mississauga and Newmarket. Meanwhile, L Brands is trying to reposition its La Senza brand to cater to the younger generation. It's also adding the entire PINK and lingerie assortments to its Victoria's Secret stores.

Ann has some work to do on the inventory management front. It has 77 days of inventory, compared to L Brands and Chico's, which have around 64 days. Its cash conversion cycle is upwards of 48 days, at half-decade highs. In any case, its Ann Taylor Factory Stores should help with flushing out slow-moving and out of date inventory at Ann Taylor and LOFT stores.

Foolish bottom lineAnn's appears to be a very compelling buy in the small-cap space. Analysts also agree, as 7 of the 16 analysts following the stock have a buy rating, while the other nine have a hold rating.

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